Forget Profits, For Banks It's All About Loan-Loss Provisions

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It's a term that few would have expected to see with respect to banks' earnings and revenue just a few short months ago: loan-loss provisions.

Yet it is the staggering, multi-billion-dollar loan-loss provision figures that the likes of Bank of America  (BAC) - Get Report, Citigroup  (C) - Get Report, JPMorgan Chase  (JPM) - Get Report, Wells Fargo  (WFC) - Get Report and even Goldman Sachs  (GS) - Get Report have been reporting this week that has grabbed investors' attention.

And for good reason: the numbers are not only unprecedented, they speak to the true duress that financial institutions have been enduring through the coronavirus pandemic and accompanying economic downturn that has roiled financial markets, sinking asset values and squeezing banks' liquidity.

Bank of America and Citigroup both revealed on Wednesday starkly negative snapshots of their most recent quarters, posting earnings that were half of what they were a year ago as they both bulked up their loan-loss reserves by at least $4.8 billion.

One particular eyebrow-raising metric in Citigroup's earnings vs. its peers was its cost of credit, which surged to $7 billion in the first quarter of 2020 compared to $2 billion in the prior-year period - a reflection of its fixed-income holdings.

Another eyebrow-raiser: the bank's allowance for future loan losses, which rose to $20.8 billion at the end of the quarter, or 2.91% of total loans, compared to $12.3 billion, or 1.82% of total loans at the end of the prior-year period.  

Even venerable Goldman Sachs couldn't escape the loan-loss lens. The firm's net credit loss provision for the quarter was $937 million, better than its brethren but still a more than three-fold increase from the first quarter of last year.